Twipocalypse Now: Warnings of a Twitter Bubble

What does it mean when hundreds of third party services (with questionable, if any, business models) are dependent upon a single service which itself has no business model? This guest post by Neal Wiser suggests that Twitter’s amazing growth and popularity are indicators that the company is at the center of an emerging Bubble and examines the risks and rewards that a bubble could present to the service.

Never before in human history have the words of so many been able to travel so far so quickly. Now, with the emergence of Micro-blogging and The Live Web, our ability to communicate and collaborate has, yet again, been significantly amplified. Indeed, it seems that everyday, as we drink our morning coffee, we hear about amazing new technologies, products and services that are developed, announced, released and gain massive loyal followings seemingly overnight.

While it took Twitter, the de facto leader among micro-blogging services, a little longer then that to reach its current level of popularity, few who use this and similar services can doubt that we are participating in the birth of a new, exciting and important communications channel. But does Twitter’s growing popularity and the evolution of the Twitterverse, the combined ecosystem of users, third party services and all things Twitter, foreshadow continued success or impending doom?

No Doom Here. Move Along

It’s hard to suggest that a company with less than thirty employees that just closed an additional funding round of $35 Million is at risk for anything, but the signs are there. Indeed, there are a combination of factors which, together, suggest that if it’s not careful, Twitter could succumb and be a victim of its own success.

So what could possibly suggest that Twitter is at risk? To answer this question, we must take a step back, far enough to see the totality of all that which is the Twitterverse, in order to get a good look at the big picture. It is, in fact, at that point when the ever increasing size of the big picture comes into view that one can see that Twitter is at the center of an enormous and ever inflating bubble.

Remember when Alan Greenspan coined the phrase, ‘Irrational Exuberance?’ He was talking about bubbles. Indeed, bubbles seem to be appearing with greater frequency, so much so, that during the past fifteen years we have been witness to and participants in several bubbles including:

Why Bubble are Good

If you’re fortunate enough to be at the right place at the right time, and have the right skills, friends, etc., a bubble can be a truly great thing. We all benefit from bubbles in the following ways:

Bubbles drive Innovation generating new technologies and processes

Bubbles add value to existing products

Bubbles put people to work in good jobs (if the enterprise is funded)

Bubbles give people the opportunity to hone and develop new skills

One only need look at the already massive, yet still growing ecosystem of new products, features, enhancements and services as an example of how Twitter benefits from their own bubble. Together, all of the hundreds of third party products and services are adding tremendous value to Twitter by making the service both more useful and easier to use in a variety of ways. And this is all happening with barely any involvement from or risk to Twitter itself. The result is that Twitter gets free research and development and it directly benefits from the labor of hundreds, if not thousands, of hard working individuals who assume virtually all of the risk and ultimately make Twitter exponentially more valuable.

Why Bubbles are Bad

Of course, taking advantage of a bubble requires more then just good timing, a good idea or the sheer ability to execute. But even if all of these factors fall into place, one could still fail spectacularly because, like a soap bubble, the forces which hold bubbles together can be tenuous at best.

Unlike their physical counterparts, market-driven bubbles can appear, from the inside, robust and infinite. Unfortunately, as we all know, the reality is that bubbles can be unbelievably fragile and dangerously destructive. Indeed, for every positive effect, bubbles can have negatives effects as well, such as:

Drive risky and irrational speculation by unqualified investors

Cause prices to rise to unsustainable levels

Expose companies and individuals to considerable and unnecessary risk

Provide fertile ground for swindlers and other predators

Signs of Twitter’s Bubble

So, why do I believe that there’s a Twitter Bubble? Fortunately, the signs are numerous and plain to see; you just have to know what to look for. The following are just the most prominent.

Astronomical growthTwitter’s growth rate for the year 2008 reached 752% (). This may not seem impressive compared to Facebook which is currently adding a number equal to Twitter’s entire user base every two weeks, but for any service, this number is astounding.

The emergence of a massive and growing number of third-party services
As Twitter’s user base continues to grow, so have the number of associated third party services. Now numbering in the hundreds (Twitter Fan Wiki features over 350 alone) with more emerging every day, all are wholly dependent upon Twitter, yet few, if any (like Twitter itself) have any viable business models.Granted, many of these services are noble and selfless efforts by users who simply love Twitter and are merely trying to extend and enhance the core service. However, most of the rest are like the many companies making Facebook apps; almost none have viable business models either, except for (the hope) of being acquired.

‘Irrational Exuberance,’ indeed
While other third party endeavors will undoubtedly receive funding, a pair of recent events provides evidence that ‘irrational exuberance’ is starting to take hold of the Twitterverse.First, Twply, a startup that was developed, released, achieved ‘media darling’ status, became a pariah and was subsequently ’sold’ all in approximately 24 hours (admittedly, for a pittance, about $1,200, but not bad for a few days work).

Bubbling Over

Clearly, it’s not hard to see that things are starting to get out of hand. And while Twitter’s amazing growth is as enviable as it is impressive, if I were Twitter, I would be more then a little nervous. Although the $35 Million Twitter just raised (in addition to millions remaining from previous finding rounds) buys a lot of breathing room, Twitter is bound too closely to its third party providers just as they are bound to it.

Surely, Twitter could and most likely will acquire several of the more popular services which provide the most valuable enhancements to its core service. But, as Twitter makes these acquisitions, many new and exciting services will be developed as more people jump onto the band wagon hoping for a quick and profitable exit.

Consequently, these acquisitions will continue to inflate the bubble. In the near term, this will ultimately expand Twitter’s utility and usability, but as the world’s economy continues to contract, millions of people will suddenly find themselves with time to experiment and to use Twitter to help them find work.

Initially, this will be a good thing as Twitter and its third party service providers gain popularity and users, thus the bubble will continue to inflate driving additional investment and innovation. However, the costs of these services will likewise balloon as more and more bandwidth and server capacity will be required to maintain them. And this does not even address the ability for the services providers themselves to scale as they struggle to handle the flood of additional users.

Twipocalypse Now

Unfortunately, as the economy worsens, the vast majority of these service providers will find they are simply unable to cope. As their traffic increases, they will burn through what cash reserves they may have just to maintain their services, realize they had no practical plans to generate revenue (if they had any plans at all) and discover that new capital has dried up. Ultimately, they will no longer be able to pay their bills and they will be forced to shut down.

At this point, if enough services fail, Twitter will actually begin to lose value. Sure, some services may actually prosper as they pick up users shed by their less fortunate peers and perhaps even find their own financing, if anything is left. Or they may even be acquired by Twitter itself. But as Twitter’s value is derived from the entirety of the Twitterverse, even Twitter doesn’t have enough money to keep its entire extended family running.

Twipocalypse Later

While much of these events are probable, Twitter’s demise is by no means inevitable. Twitter should be working hard to shore up its infrastructure to support these services, perhaps by providing a ‘cloud’ service off of which the other services can continue to run. Additionally, Twitter could set up an incubator-style operation to support the more popular and promising services and provide the capital and technical expertise for them to stay alive.

Or Twitter could quietly build their own versions of these services, hold them in reserve for when the other services fail, then swoop in to save the day (I am NOT suggesting that Twitter is so underhanded, but it is consistent with allowing them to let their third party providers assume all the risk of developing new services, essentially giving Twitter a free R&D platform).

All this would clearly delay Twitter’s day of reckoning and buy them time to let their service mature. Of course, there are other dangers that will naturally evolve from Twitter’s own growth. For example; as it becomes commonplace for people to acquire tens of thousands of followers, the inevitable backlash of ‘Twitter-Fatigue’ will drive many people away as they become overwhelmed with managing the sheer number of followers as their flood of tweets becomes a torrent.

How to Protect Yourself

Unfortunately, there’s not much the average user can do to protect themselves, but there are a few options.

Comments

No offense to a fellow Philly guy, but you’re comparing apples and oranges.

Bursting bubbles are inevitable in the financial world when assets appreciate too quickly, but that has nothing to do with websites that grow rapidly. In a bubble, prices are driven up by irrational exuberance. Websites like Twitter grow quickly because people are finding the service useful.

Well researched and comprehensive piece Neal. But I wonder if you’re in danger of over thinking Twitter. It’s a great service, lots of people use it. As it’s currently free, there is no revenue bubble to burst.

Hi Walt, thanks for the comment. Just to clarify, I wasn’t comparing apples to oranges, but drawing an analogy between financial bubbles and certain trends accumulating around Twitter which I believe are signaling a likely set of outcomes.

Additionally, I used “irrational exuberance” to describe the ‘excitement’ (for lack of a better word) that is driving the growing number of third party services.

I am already following you at Twitterville. This is a very insightful post. I definitely helped me to plan and be more proactive as I participate in Twitter. My followers are groing fast (and I am grateful for that), now I have to back-up and also get a Friendfeed account.

Nice article!
There is definitely a big risk for services to be focussing their business singly on Twitter on any other service or company for that matter. The fact that the API was free to use, but now also is getting limits is also a risk.

When you are a company you have to spread risks in a healthy manner and stay focused at the same time.

Neal, this post is provocative, learned and clever. What a treat.
Maybe you are ‘overthinking’ or drawing too close a comparison, but I don’t think so. There really is something a little crazy going on out there in the MSM with regard to Twitter… there’s a lot being said about Twitter, much of it naive or sarcastic, by those who don’t really get it yet. The only thing getting more press (with fewer users) than Twitter right now are those Snugglie blankets-with-arms. What’s with that?

Interesting piece. I certainly see some of what you are saying related to the 3rd party services and such, but seriously – I see many of them more as people adding to the usability of the service than trying to make a quick buck by being acquired. Of sure, there are plenty of those out there. But TweetDeck and Twhirl got funded because they make a dramatic improvement to Twitter. The amounts in question are small enough, and the userbase big enough that perhaps some believe a simple ad revenue model or basic/pro version model will be enough. I’d pay for TweetDeck, and I’m not one to pay for software very often.

Twitter certainly can raise revenue with advertising. Even small, unobtrusive ads. In this economy, perhaps not much, but like you noted – they have kept staff growth in check to a point so far. If they continue to do that vs blowing through the raised money like a true dot-com, they’ll do OK. I personally worry more about the scalability of the underlying architecture, which showed it’s weaknesses a lot last year.

The cool thing is how creative people have been in building the 3rd party apps around Twitter. I think some will be just as creative in trying to generate revenue.

Of all your cautions, I think the fatigue one is the most important. We want followers to grow our tiny brands or even egos, but managing a torrent of tweets will become difficult. But already, tools are coming up that make that easier to deal with, so perhaps for ‘power’ users, fatigue will be less of an issue.

@Mike – There is no revenue, period. That is what makes Twitter in danger of bursting – because they have not figured a way to make money at their service. Right now is a great time for Twitter, because it is going mainstream and there is increased popularity. What this article is predicting is the ‘what-ifs’ for Twitter if it continues without a profitable business model.

Your last point about Twitter fatigue strikes the strongest chord with me. Twitter could simultaneously decrease its costs and increase its value by emphasizing the more meaningful connections buried inside its superficial follower graph.

Neal – Thank you for the well thoughtout and insightful post. Twitter has become an indispensible tool for use in my business and I only see this growing as I move into the future. I can accomplish certain objectives on Twitter that cannot be done with the relative ease and effectiveness of the correct 140 characters. I always strive to give 1000 times what I wish to recieve from the Twitterverse and by adding value I always recieve more that I expect.

It will be interesting to see how Twitter evolves with new third party services and continued growth, I hopr that the openess and integrity that we enjoy today will remain. Like anyother buisness channel one cannot become solely reliant on Twitter – especially since you have no control over the direction of that platform; however, it would be wise to execute on a well planned Twitter strategy.

Good thoughts. I don’t think twitter is in danger of bursting anytime soon. As we have seen with facebook where people have started to accumulate 1000’s of friends who they can’t manage yet it hasnt deterred them. The development of groups and micro-managing of twitter is what will continue to keep everyone in the game.

It’s a good thing if many of the 3rd party apps do fail. To many of them dont work properly already. It would be nice to have 1 top app in different fields rather then all these small ones.

I also really believe twitter will make money. They have so many options on how to monetize everything. I think they said they are planning on it for 2010. So we’ll see.

I think Twitter suffers from problems with spammers and it still has a lot of technical problems related to scaling up. I am using and enjoying FriendFeed more and more – as opposed to Twitter. I think FriendFeed as well as Facebook could be formidable competitors of Twitter.

Your explanation is very clear but the implication that it would really matter if twitter disappeared tomorrow is overstated.

A twitter bubble bursting would hurt investors but I don’t think it would hurt users quite as much as you suggest. Investors takes risks according to their own particular analyses, needs and opportunities. Caveat emptor.

As far as users needing to backup and so on – tweets are ephemeral, not deathless prose.

This topic of a bubble has come up several times in conversations I have had with other startups. Your advise for the user is very timely. As I introduce twitter to clients or friends, I also am careful to explain that it is a tool. While currently it is great tool, it will inevitably be replaced by others. The user as you state, needs to be savvy in making sure they are using the tools that fit their needs as well as the needs of those they serve.

Yes, there is a real possibility that Twitter might be just another fad. And yes, $500 million negotiation deal with Facebook is a ridiculous amount. But thats Facebook .After the mini-feed fiasco, face lift, and now the TOS, I am convinced that Mark and company are living in a bubble of their own.
The problem facing Twitter is not 3rd party applications. Most of them merely provide information about my tweeting habits bundled in pie and motion charts. If all the 3rd applications were to disappear one day, I would get along just fine and my use of twitter would be altered only mildly. And I bet, most of the tweeters will get along too, after a period of whining. (Welcome to the internet!)
The problem, in my opinion, is irrational expectations. Just like during the internet dotcom, mom and pop store business are going to start a twitter account hoping to turn into a million dollar company overnight, only to find themselves reading about people tweeting their lunches. Lets not even get started on auto-DMs from so called SEO and social media. (What the hell makes you think you are an expert when your site gets 10o hits per month!)
Average Joes (the real average Joes, not Joe the plumber) are going to start a twitter account hoping to replicate the success of Kevin Rose of Digg or Stephen Fry, but will end up with 20 bots following them and no one caring about their tweets. I personally do not care for either one’s tweets.
Although I am beginning to see increased spamming activity on twitter, I’d say at this point, Twitter is still on track to becoming the next big thing after Facebook. Of course, given the management sees that twitter is not Facebook or Myspace and doesn’t try to copy their business plans.
Yes, I am looking at you Facebook and Digg. I give you credit for coming up with a great product, now hire a MBA to run the bloody company. Only Steve Jobs can be a rock star of both worlds of engineering and management. You however suck at making cash.
The one good thing about this economic crisis is that all the so called Web 2.0 companies will soon find themselves out of money. It will be interesting to see which ones will be left standing and which ones will not (you know who you are).
Of course being a casual observer I reserve the right to complain and criticize while not doing anything productive myself…yet. God I love the internet!

It’s interesting to start seeing others making observations about Twitter’s growth recently- I’ve been rambling around the office, predicting as if I was wearing a sandwich board for a couple of months now that Twitter is going to be mainstream by mid-summer.

Of course, the question on anyone’s mind when something like that happens is whether it will burst or become an institution. Many said Facebook would collapse, too- but it hit the boiling point where enough people were signed on that the minority became the majority, and anyone on the latter half of the adoption bell curve signed on pretty quickly.

So. I think there are two things that ultimately could lead to the “downfall” of Twitter:
- they fail to monetize the service, funding dries up (you cited this as a possibility)
- their service collapses due to poor infrastructure and inability to respond proportionately to demand

I’d say, however, that both of these items are unlikely to happen since they are both related to immense growth and demand- and when there’s demand on the levels we’re talking about for a service, only the worst businessmen don’t maintain and profit from their product. And most of the valuation on Twitter as a service ties into its growth projections which, as you cited, are tremendous.

It could even be argued that even Google has an overblown valuation and has a “one-trick pony” for a business model, but it’s clear they’ve become an institution as well. Reaching this kind of status prepares such services for the long-haul as long as they have smart people at the helm.

Regardless, I applaud your research and what is clearly a well-constructed argument. We’ll all see how great our fortune-telling is in the coming months and years.

P.S.- I’m ignoring the irony of the fact that this article is posted on a third party service that is dependent on a single service, thus contributing to its own trend Maybe we have a Strange Loop here?

Hi, I am experimenting a lot with conference documentation by Twitter. Do you know how to download other peoples’ tweets, or, tweets of a specific hashtag etc. in a way that it can be processed further, e.g. in Word document or so, without the dump copy/paste thing?

Thanks for publishing this article, I think it is absolutely necessary for Twitter to enable users to backup their material in order for users to maintain credibility for their posts. Without a check and balance system there is no freedom of speech. The user needs to be able to back up their material to protect against theft and corruption of their information. By providing a check and balance system Twitter supports freedom of speech and allows the user to provide proof of their information, take credibility and defend against any false changes to a user’s material. Regardless of the changes and development in the future of the Twitter platform the check and balance system must stay in place in order for the Twitter service to be credible according to United States law.

Hello Neal, as usual a well researched and presented piece and I really enjoyed the read. As a relative newbie to this platform with the goal of working with other businesses on the best strategies to use Twitter to its fullest, I can’t say this question hasn’t crossed my mind.

However, being a ‘the glass is half-full’ type of guy, I look at how much I enjoy the people I have met on Twitter and the things I have learned from those people and find it hard to believe it could just be a bubbliscious platform waiting for the pin. The value it has provided me and what I attempt to provide back to the community keeps me striding towards always bettering myself and the content I share – there aren’t many tools that provide that type of challenge and value proposition to its community.

However, I also think several of your points are on-topic and the suggestions you give to be smart about the long-term are timely. With the recent stink of who owns content on Facebook, it pays to be wise early.

It was also interesting to read your post right before reviewing Evan Williams’ talk on TED about all the unexpected ways Twitter is being used. I hope that the sheer number of amazing and sometimes weird ways people use this tool give it the staying power to overcome several of the obstacles they are sure to face.

twitter means lot of fun and community. I wish, twitter will make it. But I never would build a business on it as long as they don’t have a reliable business model themselves. always good to think alternative, ie friendfeed, facebook and in my case good old email-newsletters and internet-forums too.

Interestingly enough, I have been wondering about this myself, although I did not do such a thorough analysis. People rave about Twitter as if it’s the most amazing business tool the world will ever see, and the secret to easy success by doing something that most people consider downright fun. I’m not sure it’s as simple as they make it out to be.

I think there is a place for a service like Twitter as a purely social tool, but it remains to be seen whether businesses can actually do something worthwhile with 140 character updates, and whether people will even want to read them.

Very interesting and thought provoking post, but towards the end you said, “Unfortunately, there’s not much the average user can do to protect themselves, but there are a few options…”

What in the world would I need to protect myself from? Twitter is an unbelievably powerful real time information platform, but the info is disposable. I read a tweet, maybe check out a link, bookmark it if I can use it for a reference or find it interesting, and that’s it. Move on.
Why would I ever need to “backup” my tweets?

I think most would agree that if Twitter did fail (which, I highly doubt that will happen anytime soon – it’s revolutionary), it certainly wouldn’t matter to most people. Sure, they would be upset, but the next new service would be born a week later and we’d move on to that. Does anyone really have financial interest in Twitter? Probably not.

You can also sign up for free and competing services like http://identi.ca/. Identi.ca is free software as well as a free service. If anything happened to Twitter, I would bet that Identi.ca user numbers would sky rocket!

I agree – I had the same concerns with the internet bubble. How can a company with few or no assets raise 35 million dollars? They give their service away for free! Where is the income going to come from to make a profit for the VC’s? 35 million dollars is quite a number of ad-clicks. Don’t get me wrong – I love twitter and use it every day, and will continue to use it.

And congratulations to the founders of twitter on their new found wealth!

Neal well thought out and great analogies. My question to you, so what! If Twitter were to self destruct it is because it was time for it to die. Which means something that serves us better would have been born. So let’s let go of the worry and reframe our thinking to be more fluid so we are able to “really” go with the flow so to speak. Knowing that we are always in possession of our choices, just open our minds, go on crack open another window and let the air in giggle!

In one of the earlier comments, Jack wrote that he’s a “glass half full” kind of guy. I’m neither into glasses half full or half empty; it’s just the way it is.

Why bother concerning yourself with what-if scenarios when everything may, as you say, boil over tomorrow? Twitter was down earlier today, and it will go down other days; it will also see periods of notoriety when everyone and their mother wants to tweet about a singular topic, e.g. today’s ranting over Skittles candy.

Either the bubble bursts or it doesn’t. While I agree with you that you should make your mark on other social networking sites, that’s good practice regardless of Twitter so you can increase your networking and build up that Dunbar number of 150. I’m doubtful that speculating about the future will solve anything.

I don’t think we’ve begun to see the potential of twitter. there are more people out there who are IM users and twitter is kind of a public IM. Everyone joins, and views posts of those they are interested in. If they contribute, they build networks faster than more traditional SM systems. The communication is faster and more ubiquitous. For this reason, the potential far outweighs more traditional, closed social networking systems. I ultimately believe that the traditional SNs will ultimately be forced to interoperate with Twitter so everyone can share info on a common platform.
There is no bubble here, certainly not yet. For a economic bubble to occur, there needs to be rampant financial excess. We’re nowhere near that point.

If google or microsoft (or even yahoo) is paying attention, they need to buy this thing before it becomes the communication vehicle that eliminates thier instant communication solutions. Once it does, they’ll be subservient to it and will be forced to adopt its standard. It may very well become the email of IM.

I suspect that the whole thing could collaps. But Blogger seems to be going strong, Facebook is going strong, Friendster is going strong, Digg is going strong and the list goes on. I like the twitter rush because going into a restaurant for example with no people is weird. Also if twitter keels most twitter apps that are quickly made, and designing aggregators costs almost nothing I think we all win no matter what happens. Also if twitter keels people will still have residual social leveraged traffic on their site till the end of time. So Twitter rulez.

There seem to be a lot of comments (jhoysi for one) suggesting that Twitter have not “figured out a way to make money.” I would have to beg to differ on that point . I’m absolutely certain that they have figured it out and know exactly what they’re going to do to earn money. Do you think they would have been able to raise the kind of funding they have without a cast iron plan?

The cool thing about bubbles is that when certain ones collide (collaborate) they form a bigger bubble. Sometimes there is a wall between the bubbles which can have a prism effect and makes everyone ooo and ahhhh. After a bubble burst (as clearly they often do) there is still a slight residue left behind that is useless yet serves as a reminder of what once was. In my oversimplified perspective Twitter seems to be more of the bottle and wand mechanism that when coupled with a delivery source (people, internet etc.) and a LITTLE airflow (capital) the bubbles just spew out like a floating party!

I think there are some issues with Twitter, like users marketing too much. But overall the service is incredible and following certain people is very revealing. The companies latest upgrades should make the service even more enjoyable as the downtime is being eliminated.

Wow, I just used Stumbleupon to find this article and it was a great read.

I have been wondering lately how Twitter is able to pay it’s server hosting fees. Twitter doesn’t have the greatest hosting company because the website can’t handle the masses, which we see now and then with the blue whale of Twitter death. Twitter is so famous yet it can’t pay for never fail hosting like Google and Facebook do to keep it’s ‘customers’ connected.

Your bubble link is a great one and appropriate I think. I just read how Facebook is a much more powerful tool than Twitter to refer users to a website.